LMN v Bitflyer Holdings Inc & Ors

The court may grant information orders under the Norwich Pharmacal and Bankers Trust jurisdictions to trace cryptocurrency and identify persons involved in its misappropriation. A good arguable case is sufficient at the service-out stage. For a Bankers Trust order, the applicant must show a good basis for ownership, a real prospect that the information will locate or preserve the assets, necessity and appropriate specificity, a balance between the parties’ interests, and suitable undertakings.

Orders may be made against foreign cryptocurrency exchanges where the location of electronic documents is uncertain, particularly in cases involving fraud. The court may permit alternative service where there is good reason, and, where necessary, exceptional or special circumstances. Orders should protect confidentiality, collateral use, local-law compliance and the respondent’s ability to challenge jurisdiction.

LMN, an English cryptocurrency exchange, alleged that hackers had transferred substantial quantities of cryptocurrency from its systems. Blockchain analysis identified exchange addresses, but the relevant customer identities and subsequent transactions could not be established without information held by cryptocurrency exchanges and associated entities.

LMN applied for permission to serve proceedings out of the jurisdiction, alternative service, and information orders under the Norwich Pharmacal and Bankers Trust jurisdictions. The first application was made without notice. After notice was given, the court considered the substantive relief, the proper defendants, confidentiality, the scope of disclosure and the respondents’ rights to challenge jurisdiction.

1. Service out. The applicable test comprised: a serious issue to be tried on the merits; a good arguable case that the claim fell within a service gateway; and England and Wales being the appropriate forum. There was a good arguable case on each limb.
2. Information jurisdictions. The claim satisfied the Norwich Pharmacal conditions because wrongdoing had arguably occurred, the information was needed to enable proceedings against the ultimate wrongdoers, and the exchanges were mixed up in the wrongdoing in the relevant non-culpable sense and were likely to possess useful information. The Bankers Trust jurisdiction was also available. There was a good arguable case that the cryptocurrency was property belonging beneficially to LMN or held on constructive trust, and that transfers could be traced as substitutions. The information had a real prospect of locating or preserving the assets.
3. The order was sufficiently targeted and proportionate. The claimant’s interest in tracing the assets outweighed the respondents’ potential detriment, which was mitigated by undertakings as to expenses and damages, restrictions on collateral use, and a provision that no respondent had to act contrary to local law.
4. Foreign respondents. The approach in Mackinnon, concerning banks and documents located abroad, was inapplicable. The court did not know where the electronic documents were located, their physical location might have little significance, and the case involved cryptocurrency fraud and the pursuit of assets. Requiring speculative applications in several jurisdictions would cause delay and expense.
5. Alternative service. Service by email and, in one case, by an online contact form was justified by the nature of the claim and the need for expedition. The elapsed time since the fraud did not remove the need for prompt action. The respondents retained the right to apply to set aside the service order.
6. Information orders were made after amendment and substitution of defendants. The information was limited to material capable of identifying account holders, tracing the cryptocurrency and identifying onward recipients. Compliance dates preserved the respondents’ time to challenge jurisdiction. Confidentiality, privacy, local-law and collateral-use protections were included.